China’s trade ministry said prolonged US dollar weakness could escalate actions taken in a “currency war” and add to risks for exporters.
“The continued and drastic US dollar depreciation recently has led countries including Japan, South Korea and Thailand to intervene in the currency market, intensifying a ‘currency war,’” the Chinese Ministry of Commerce said in a trade outlook report posted on its Web site yesterday.
“In the medium-term, the [US] dollar may continue to weaken, exacerbating actions related to major currencies and adding risks to companies’ operations,” the ministry said.
China is under pressure from major trading partners, including the US and Europe, to let its -currency appreciate faster. Emerging economies have complained that near-zero US interest rates and US Federal Reserve asset purchases have pushed the US dollar down and sent funds flooding into their markets, stoking asset bubbles and inflation.
The Fed may unveil a second round of asset purchases, so-called quantitative easing, after policy makers meet today and tomorrow. Currency disputes are set to dominate the summit of G20 leaders in Seoul from Nov. 11.
“The uneven pace of economic recovery around the world this year has prompted major economies to increasingly adopt self--serving macro-policies with increased trade protectionism,” the ministry said in the report.
China’s exports face limited room for growth next year because of weaker global demand, rising trade disputes and higher domestic labor and raw material costs, it added.
China ran up a record US$28 billion trade surplus with the US in August, according to figures released by the US Commerce Department on Oct. 14. That bolstered complaints from the US business groups and lawmakers that a weak Chinese currency gives the Asian nation’s exports an unfair advantage.
Even as China runs a surplus, the nation has curbed the yuan’s rise to about 2 percent against the US dollar since a June pledge to introduce more flexibility, saying anything other than a gradual appreciation could cause social and economic disruption.
The US Dollar Index, which gauges the US currency’s value against a basket of six -counterparts including the euro, yen and pound, has fallen more than 4 percent since Sept. 21, when the Fed said it’s prepared to act to support the economic recovery.
The Fed’s “uncontrolled” issuance of US dollars is adding to inflation risks in China and creating difficulties for the nation’s businesses, Chinese Minister of Commerce Chen Deming (陳德銘) said last week.
US policies “and continued increases in commodity prices are bringing China the shock of imported inflation,” Xinhua news agency cited Chen as saying at a trade fair in Guangzhou.
Finance leaders from the G20 pledged to refrain from “competitive devaluation” to ease fears of a trade war and help curb volatility in capital flows after meeting in South Korea last month.
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